3 Questions You Should All Be Able To Answer

NCUA released a letter to credit unions yesterday detailing the supervisory focus for examiners in 2013. You should definitely read it for yourself, but to me, it comes down to being able to answer three basic questions: Do you know who you are dealing with? Do you know what you are dealing with? and Have you hedged your bets in case things don’t go as planned?

For example, if you are embracing new technologies such as online banking and remote deposit, do you have internal controls in place “commensurate with the risk involved[?]” Are you hedging your bets? NCUA dropped the requirement for a formal interest rate risk policy for credit unions with $50 million in assets or less, but don’t fool yourself, interest rate risk is still a primary concern of regulators and they are going to expect you to demonstrate not only how you are managing those risks, but whether or not you have access to lines of credit in the event of an emergency.

By asking whether you know with whom you are dealing I am simply rephrasing NCUA’s concern that “some credit unions invest in less established or complex products such as student loans or investments associated with credit union funded employee benefits.” NCUA will be making sure you have the expertise to deal with these products. NCUA’s concern is similar to that of other banking regulators since credit unions often use vendors to introduce new products. One of the easiest ways to address at least some of NCUA’s concerns is to show that you utilize a robust third-party due diligence program and to show that even when utilizing a vendor to invest in such programs, your staff has the expertise to know what it is these vendors are doing on behalf of the credit union.

On that note, have a nice weekend and for those of you inclined to bet give the points and take the money, San Francisco 31-10 over the Ravens.